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T O P I C    R E V I E W
Debtdummy Posted - 23 March 2007 : 17:03:02
31.7.19 Expenditure items which can be allowed

The following provides a general list of expenditure items which can be included in addition to basic domestic expenditure when making an IPA/IPO calculation to establish whether the bankrupt has surplus income:


TV licence

Household and car insurance

Car tax

AA/RAC or similar motoring assistance club membership

Membership of professional body required in order to carry out employment (unless paid by employer)

Hire of TV and/or DVD/video player (no more than one of each appliance per household)

Prescription charges - see paragraph 31.7.20

Dental and optical treatment - see paragraph 31.7.21

Mobile phone costs - see paragraph 31.7.22

Dry cleaning costs - see paragraph 31.7.23

31.7.20 Prescription charges

Where the bankrupt is liable to pay for prescriptions and is claiming for multiple item monthly prescription charges, the official receiver/trustee should assess whether the costs claimed are in excess of the average monthly prescription costs available under either a six-month or annual pre-payment certificate. These prepayment certificates can provide a considerable reduction in the monthly cost of prescriptions where an individual has to pay for more than five prescription items in four months or 14 items in 12 months.

For further information concerning pre-payment certificates see also:



31.7.21 Dental and optical treatment

Where the bankrupt can demonstrate to the satisfaction of the official receiver/trustee that he/she has no NHS dental service practically available to them (for example where they live and/or work in a remote area), this type of expenditure may include items such as a dental payment plan for treatment at a privately run dental practice, however this should only be considered where there is no practical NHS alternative.

31.7.22 Mobile phone costs

Costs must be reasonable. It may be necessary to disallow part of the monthly amount claimed if the claim is above average and the calls made can be shown to be predominantly social. Where the bankrupt uses the mobile phone for business calls, the official receiver should establish whether the bankrupt's employer provides re-imbursement for this usage (or if self-employed, whether the bankrupt claims expenses for this usage from the business additional to any other drawings/income they have already declared) , and either include the re-imbursement as additional income to off-set against the total expenditure claimed, or simply disallow the work-related portion of the claim for mobile phone usage (the same principle could also be applied where a bankrupt uses their landline home telephone for business as well as personal calls). Where the bankrupt claims that use of a mobile phone is essential, but costs claimed have been reduced or disallowed by the official receiver/trustee in the IPA/IPO calculation, it is up to the bankrupt to consider whether a "pay as you go" scheme would provide a cheaper alternative to their existing arrangement. Where the bankrupt is still in receipt of ongoing services under contract at the date of bankruptcy, the official receiver/trustee should give notice to the mobile phone service provider that he/she does not wish to adopt the contract previously held by the bankrupt. Where a penalty is incurred arising from early termination of the contract this should be included as a debt in the bankruptcy proceedings. (See also paragraph 31.7.35)

31.7.23 Dry cleaning costs

If the official receiver/trustee considers the amount claimed in this regard is excessive, further explanation should be sought from the bankrupt and a more reasonable allowance included if the bankrupt cannot justify the original amount claimed.

31.7.24 Other expenditure items to be considered

Outgoings assessed must be realistic and should cover the actual expenditure required to provide for the reasonable domestic needs of the bankrupt and his/her family. It may be necessary when examining the figures provided by the bankrupt to consider other areas of expenditure which the bankrupt may not have included, but which are necessary for meeting their reasonable domestic needs. Some bankrupts may find it difficult to assess the outgoings of themselves/and or their family where the expenditure is sporadic (e.g. buying school uniforms) or prior to bankruptcy they have not been in a position to meet their reasonable domestic needs as a result of other pressing debt repayments.

In these circumstances it may be necessary for the official receiver/trustee to refer to average expenditures in order to calculate the realistic outgoings required to meet the reasonable domestic needs of the bankrupt and his/her family.

The following suggested areas cover other types/amounts of expenditure claimed by the bankrupt which may need careful consideration when making an IPA/IPO assessment.


Clothing - see paragraph 31.7.25

Holidays - see paragraph 31.7.26

Hairdressers - see paragraph 31.7.27

Extra curricular activities for children - see paragraph 31.7.28

After school clubs - see paragraph 31.7.29

Pets - see paragraph 31.7.30

Rent arrears - see paragraph 31.7.31

Maintenance payments - see paragraph 31.7.32

31.7.25 Clothing

An allowance for the necessary replacement of clothing should be included in the IPA/IPO calculation. What is reasonable will depend on the individual circumstances of the bankrupt and his/her family. For example, families with young children or families where any member of the household suffers from a debilitating and/or chronic medical condition, may require a higher allowance for clothing than the average amount recorded for similar sized households in the Family Expenditure Survey, if they are to meet their reasonable domestic needs. The nature of the bankrupt's employment and clothing requirements arising should also be considered. e.g. whether he/she is required by his/her employer to fund specialist clothing or smart clothes. In general, where the bankrupt is claiming an amount for clothing in excess of the figure relevant to their family circumstances in the Family Expenditure Survey, they should be asked to explain why they require the extra allowance and provide evidence to support their claim.
31.7.26 Holidays

Previous guidance stated that an allowance for holidays should not be included in the calculation of funds available for an income payments contribution, other than in exceptional circumstances, for example where a dependant was sick or disabled. Whilst extravagance is not endorsed in this respect, it may be considered a reasonable domestic need to allow the bankrupt and his/her family to benefit from a non-extravagant holiday as a break from routine. Expensive or luxury holidays (particularly if the holiday is abroad) are likely to cause offence to creditors but an allowance of between £60-£80 per month (amounting to £720-£960 per annum) for a household of 4 people should allow the bankrupt and his/her family sufficient funds to take a moderate annual holiday. Should the bankrupt consider this allowance insufficient to fund a holiday, he/she should be informed that any additional holiday cost that he/she may wish to incur must be funded from the amount of surplus income left with him/her after deduction of the assessed IPA/IPO contribution.

31.7.27 Hairdressers

It is reasonable to allow a monthly allowance up to £10 per adult and £3 per child to pay for hairdressing requirements, but any expensive hair treatments must be funded from the surplus income remaining with the bankrupt after deduction of the assessed IPA/IPO contribution.

31.7.28 Extra curricular classes/activities for children

Whilst it can be considered reasonable to allow expenditure to be claimed by the bankrupt to fund one extra-curricular activity per dependant child, any claim for additional extra-curricular classes/activities should be funded by the bankrupt from any surplus remaining with them after deduction of the assessed IPA/IPO contribution.

31.7.29 After school clubs

An expenditure claim for after school clubs can be allowed if they are used to provide childcare whilst parents are working. If the use of the club (s) is simply a matter of convenience for the bankrupt and/or his/her spouse/civil partner/partner the bankrupt should be informed that the cost of funding the club (s) must be funded from the amount of surplus income left with him/her after deduction of the assessed IPA/IPO contribution.

31.7.30 Pets

Pet food/care should, in general, be included as part of the family housekeeping expenditure when making an income payments calculation. If the bankrupt has not included the cost of caring for a pet within the housekeeping expenditure then an allowance of up to £20 per month can be included for the care of all family pets. Should the bankrupt maintain above average numbers of pets, or exotic pets requiring specialist food/care, he/she should be informed that the additional cost of funding the pet(s) must come from the amount of surplus income left with him/her after deduction of the assessed IPA/IPO contribution.

31.7.31 Rent arrears

In a recent unreported Court of Appeal hearing, [note12] the Court of Appeal held that the right of a landlord to recover his/her property from a defaulting tenant, irrespective of whether the landlord does or does not require a court order to do so, is not affected by bankruptcy.

The Court of Appeal case concerned the situation where a possession order had been obtained against a tenant in respect of rent arrears by the relevant District Council. The possession order was then suspended when the tenant agreed to pay current rent plus an amount to discharge the arrears. Subsequently the tenant was declared bankrupt and the Court of Appeal did not dispute that rent arrears outstanding at the date of bankruptcy became a provable debt in the bankruptcy proceedings.

However, the Court of Appeal determined that the possession order was not a remedy against the property or person of the bankrupt and therefore was not restricted by the provisions of the Insolvency Act section 285 (3) (with reference to earlier cases of Ezekial v Orakpo [1977] QB 260 [note 13] and Razzaq v Pala [1997] BPIR 726 [note 14] ). The Court of Appeal made it clear that the local authority might have sought possession of the property both before and after the date of the bankruptcy order.

The consequence of this is, where a possession order is made in respect of rent arrears, the court may suspend that order on the condition that the rent arrears will be discharged over a period of time. Where the individual concerned is an undischarged bankrupt then it is anticipated that any amount ordered by the court to discharge the rent arrears would be taken in to consideration when assessing the individual's ability to make payments under an income payments agreement/order.

31.7.32 Maintenance payments

An obligation arising under an order made in family proceedings or under a maintenance assessment made under the Child Support Act 1991 is not a debt provable in bankruptcy [note 15]. It is a continuing obligation, payable out of income.

Where a bankrupt continues to receive income after the bankruptcy order has been made, the official receiver or trustee in bankruptcy may consider an IPA under section 310A of the Insolvency Act 1986 for the benefit of the bankrupt's estate. When making an IPA/IPO assessment the official receiver or trustee must consider the provisions of section 310(2) [note 16]. For further information regarding reasonable domestic needs see also paragraph 31.7.4 .

Section 310(2) expressly prohibits a court from making an IPO which would have the effect of reducing the bankrupt’s income below that which appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family. The term "family" is restrictively defined for this purpose in section 385(1) of the Insolvency Act 1986 as meaning the persons (if any) who are living with the bankrupt and are dependent on him (or her).

In practice, a spouse/civil partner/partner or former spouse/civil partner/partner may be in receipt of a maintenance order, but not living with the bankrupt, and an assessment may have been made under the Child Support Act in respect of children not living with the bankrupt. In these circumstances the obligations of the bankrupt arising from any such order or assessment would not have to be included as reasonable domestic needs of the bankrupt’s "family" to comply with the provisions of section 310(2) because the term "family" is defined in section 385(1) [note 17] as encompassing only dependants living with the bankrupt. However, when assessing the bankrupt's ability to pay under an IPO, the court has previously held that such obligations are reasonable demands upon a bankrupt’s income and has taken full account of the obligations arising from a maintenance order or a Child Support Agency assessment such that it would not make an order for an amount which would limit a bankrupt’s ability to meet those obligations [note 18].

For this reason the amount payable by a bankrupt under a maintenance order or Child Support Agency assessment should be taken into account when calculating the amount which a bankrupt is able to pay under an IPA, but should be identified as a separate item.

An simple explanation regarding the provisions of the Child Support Act and the formula used to calculate maintenance payments can be found at :


More detailed information concerning the child support agency and maintenance calculations can be found at http://www.csa.gov.uk/

31.7.33 Expenditure items which should NOT be allowed

The following provides a general list of expenditure items which should not be included when making an IPA/IPO calculation, unless the bankrupt can prove there are extenuating circumstances:


Gym membership

Sports expenses or club membership

Additional pension contributions to enhance a pension

Private healthcare insurance or similar (however see also paragraph 31.7.21)

Social and entertainment expenses- see paragraph 31.7.34

Satellite TV - see paragraph 31.7.35

Broadband internet costs (unless shown to be necessary for the bankrupt's paid employment) - see paragraph 31.7.35

Excessive mortgage payments - see paragraph 31.7.36

Student Loans - see paragraph 31.7.37

Regular payments to charitable and religious organizations/tithing - see paragraph 31.7.38

31.7.34 Social and entertainment expenses

No allowance should be included in the IPA/IPO calculation for items such as cigarettes, alcohol, recreational drugs, betting etc. As with additional holiday funds, (see paragraph 31.7.26) social and entertainment expenses should be funded from the amount of surplus income left with the bankrupt after the deduction of the assessed IPA/IPO. Only in exceptional circumstances should the official receiver/trustee allow any flexibility concerning these expenses, where other outgoings claimed by the bankrupt do not sufficiently provide for the reasonable domestic needs of the bankrupt and his/her family

(see paragraph 31.7.4 & paragraph 31.7.6).

31.7.35 Satellite TV and broadband internet contracts

Ongoing contracts for the supply of goods and services which remain extant at the date of bankruptcy vest in the trustee of the bankruptcy estate. Where the bankrupt is still in receipt of ongoing services under contract at the date of bankruptcy, notice should be given by the official receiver/trustee to the service provider stating that he/she does not wish to adopt the contract and services provided under the contract should cease. This includes contracts for satellite TV or broadband internet connection, where the bankrupt has signed up to the agreement for a set period which cannot be terminated without a penalty being incurred. Any penalty for early cancellation should be included as a debt in the bankruptcy proceedings.

NB: With the advent of combined telephone and internet packages available via broadband (where telephone services are provided free or at a reduced rate as a result of the broadband service provision), the official receiver should consider whether the expenditure claimed for these combined services may in fact be equal to or less than the cost of a traditional land line only telephone service, which would be considered a reasonable domestic need. However, the need to notify the service provider regarding non-adoption of the contract must still be taken in to account by the official receiver/trustee.

See http://www.broadband-options.co.uk/index.php?tracker=msn for information concerning services provided under various broadband supplier contracts.

31.7.36 Excessive mortgage payments

Mortgage payments may be extremely high where the home is heavily mortgaged and/or when arrears of mortgage payments are having to be met.

Where the bankrupt is making the entire mortgage payment against a property which is jointly mortgaged, and no contributions are being made by third parties, the official receiver should take this into account when assessing the bankrupt’s capacity to make payments under an IPA and "disallow" a fair share of the payments being made in respect of the joint liability.

If the official receiver’s income payments calculation taking in to account allowable reasonable expenditure, suggests that the bankrupt has sufficient surplus to collect under an IPA/IPO but the bankrupt wishes to continue making excessive payments and/or payments on behalf of third parties without receiving any contribution from them, the official receiver may consider whether to apply for an income payments order against the bankrupt rather than an IPA, following the judgment in Albert v Albert (A Bankrupt) (1996) BPIR 232 [note 19]. The official receiver must report the full facts to the court to allow the court to decide whether the bankrupt's claim that the expenditure is reasonable should be allowed. (See paragraphs 31.7.19 and 31.7.24 for further information). There is no case for allowing the pursuit of IPAs that will lead to the bankrupt becoming homeless.

Where suitable (not necessarily equivalent) rented accommodation is available at less than the cost of the mortgage payments, a view will need to be taken by the official receiver as to whether for the purpose of assessing the bankrupt's real disposable income an amount equivalent to the rented accommodation is allowed rather than the total mortgage repayment amount claimed by the bankrupt. A hard and fast rule cannot be set down as to what is excessive due to regional variations in the costs and availability of rented accommodation. Also, it is likely that a deposit will be required to be paid when "going in" to a rented property which may prevent this course of action. As a result of the requirement to pay a deposit when entering a rental contract, it may be necessary to delay the commencement of an income payments agreement to enable the bankrupt to accumulate the necessary funds, this action in the long term being beneficial to the estate by increasing the funds available to be paid later under the IPA. However, any delay in commencement of the IPA must take in to account the fact that the IPA has to be signed by the bankrupt and the official receiver/trustee prior to the date of discharge, as detailed at paragraph 31.7.2.

Where, at the date of the bankruptcy order, the bankrupt is living in rented accommodation but is also renting out a property in which he/she has a beneficial interest, the official receiver/trustee should realize the beneficial interest as an asset of the bankruptcy estate immediately and in the meantime include rental income received by the bankrupt in the IPA/IPO calculation (see paragraph 31.7.13). The official receiver will need to consider whether it is reasonable to include both expenditure for mortgage repayments and rental costs when assessing the bankrupt's expenditure. Where the official receiver or trustee has sought to disallow part of the mortgage repayments claimed by the bankrupt and an IPA cannot be agreed as a result, the official receiver or trustee may consider applying for an IPO.

31.7.37 Student Loans

When considering the income and expenditure of a bankrupt who, at the date of bankruptcy is still liable to repay a student loan, the official receiver/trustee will need to establish whether the outstanding student loan is provable in bankruptcy and whether during the period of the IPA/IPO, the loan, or any part of it, will become repayable if it is not a provable debt in the bankruptcy.

Chapter 40, Creditors and liabilities, paragraph 40.24 explains fully the differences between student loans which are provable and those which are not, but in summary, in all bankruptcy cases where the order was made on or after 1 September 2004, all outstanding student loans are not provable debts and thus are not released on a bankrupt's discharge from bankruptcy. Where the order was made on or after 1 July 2004, all student loans made under the Education (Student Loans) Act 1990 (often referred to as mortgage style loans) were also made non-provable in bankruptcy with the consequence that they were also not released on discharge. Where the bankrupt's student loan liability falls in to the category of a non-provable debt and the bankrupt is required to make repayment against that debt during the period of an IPA/IPO, this is an expenditure which needs to be included in any IPA/IPO calculation (however see also deductions for loan repayments under the Teaching and Higher Education Act 1988 below).

Where bankruptcy occurred before these dates, student loans may be treated as provable debts in the bankruptcy and are released on discharge.

In the case of loans made under the Teaching and Higher Education Act 1988 (often referred to as income contingent loans), repayments are likely to be made through the operation of the PAYE scheme. Where an employer is served with an IPA/IPO and the employee is liable to have student loan deductions taken at source from his/her earnings, the employer should continue to make the student loan deductions for the period during which the IPA/IPO applies. As the IPA/ IPO assessment is made on the basis of take home pay, and the student loan repayment under the Teaching and Higher Education Act 1988 will have already been deducted at source, in this instance student loan repayments should not be included as an expenditure in the IPA/IPO calculation.

It should also be noted that where a bankrupt is in receipt of a student loan this is not income which can be claimed under an IPA/IPO.

31.7.38 Regular payments to charitable and religious organizations/tithing

Where it has been the practice of a bankrupt to make a regular monthly payment from his/her income to a charity or church/religious organization, which may represent a tenth of the bankrupt's income hence the term tithing (meaning a tenth part), this expenditure should not be included in the IPA/IPO calculation. Should the bankrupt still wish to maintain a regular donation of this kind, as with other disallowed expenditure he/she will have to fund this expenditure from the amount of surplus income left with him/her after deduction of the assessed IPA/IPO contribution.

31.7.39 Early discharge income & expenditure review

The early discharge provisions introduced by EA 2002 mean that in cases where the order was made on or after 1 April 2004, the official receiver may cause the 12 month period of discharge to be reduced by filing notice 6.82 at court stating that the investigation of the conduct and affairs of the bankrupt is unnecessary or concluded. This process can only be started 3 months after the report to creditors is issued. After the 3 months have lapsed and no responses have been received from the creditors, the official receiver will issue a formal letter to the creditors notifying them that he/she intends to file the early discharge notice at court. If the creditors do not respond to the letter with full details within 28 days, the official receiver may file the notice at court.

In early discharge cases where there is no IPA or IPO, before the official receiver files notice at court, the bankrupt should be issued with a form EDREV enclosing form IPOQ requesting details of income and expenditure, form IPOQ to be returned within 14 days. If the bankrupt does not complete the form and return it within 21 days, or if the form is submitted outside of 21 days but the bankrupt's explanation for late submission is not accepted, his/her conduct will be considered non co-operation. However, without any other additional matters of non co-operation, failure to return the form will not be sufficient to justify application to suspend discharge. The bankrupt's failure to co-operate will however mean that the early discharge process will not be pursued and the bankrupt will have to wait the full 12 months before obtaining discharge.

If the form IPOQ is returned within 21 days/returned after 21 days but the explanation for the delay is deemed acceptable, and the form reveals a change in circumstances whereby the bankrupt now appears to have surplus income from which to make a contribution, the official receiver may still consider setting up an IPA, using the guidelines contained in paragraphs 31.7.6 to 31.7.38 . The time constraint for setting up an IPA must be remembered, as the IPA cannot be implemented once the bankrupt has been discharged (see paragraph 31.7.2). The IPA must be agreed before the official receiver takes any further action regarding early discharge. Case Help Manual part Income Payments Agreements paragraph xi, Income review in early discharge cases, provides full details as to the practical application of the early discharge procedure following the bankrupt's submission of an accepted IPOQ.

In some circumstances it may not be necessary for the official receiver to review the bankrupt's income. If the bankrupt's only source of income is disability benefit or a state pension for example, and the situation is likely to remain unchanged, there is no point in carrying out the review procedure and the official receiver may, in such cases, pursue early discharge without it.

See also :

Technical Manual Chapter 22 - Discharge

Case Help Manual part Income Payments Orders, paragraph xiii, Income review in early discharge cases

Case Help Manual part Discharge from bankruptcy

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